Should you ever 'fire' a client?

Published on 11/06/06

Some very able law-firm business consultants recommend that firms regularly eliminate a set percentage (typically 5 to 10 percent) of those clients deemed too small to be worth the firm's time and overhead.

The suggestion that law firms should automatically "fire" any clients according to a formula rattles my bones. If the work being done for clients is profitable or can effectively be used as a training ground for new lawyers, there is reason to retain the clients.

Such advice reminds me of when I was in the food industry and the process of making store-buying decisions first became based on computer runs rather than walking the stores and seeing what customers actually purchased. Some decisions based on the computers were appropriate; some were not. The damage, however, couldn't be known because the buyers didn't interact with the customers. Ultimately, the only winners were the powerful, large-volume vendors - who today literally get to purchase shelf space.

Using numbers to help make decisions is appropriate, but beware of non-thinking, knee-jerk responses

Is "firing" a client ever really a good policy? I believe that there are two scenarios in which lawyers are fully justified in walking away from potential or actual clients. Both scenarios come down to a matter of business judgment.

• The client is unreasonable.

  Going through the process of detailing and negotiating to prepare the engagement letter enables you to avoid a client with unrealistic expectations or demands who believes that your estimates, whether of time or outcome or costs, are guarantees instead of informed estimates.

  Discussing engagement terms will frequently uncover the client who will in the future express irritation with delay, who will chronically complain about everything, who will demand constant or instant attention, or who will expect unrealistic or abnormal hand-holding.

  Clients who cannot or will not agree on fees or sign a fee agreement, who use pressure tactics or demonstrate a bad attitude, or who cannot articulate what they want you to achieve, should be rejected.

   

• The client could hold you hostage.

  A statistical premise called the Pareto Principle holds that, over time, most results are produced by only a few causes, generally in a proportion of 80 to 20. When applied to law-firm marketing, this produces the conventional wisdom that 80 percent of a typical firm's revenue is produced by 20 percent of its clients - the large, heavy-hitters.

  Yet, you should beware of letting any single client approach 10 percent of the firm's revenues; its loss due to acquisition, dissatisfaction or defection of the billing attorney could cripple the firm.

  You may be willing to accept this risk for the short-term with the intent of getting more clients so that the percentage allocation to the "larger" client is reduced, while maintaining the billings at the same level for the client.

  If so, make no long-term technology or other expenditures at the behest of larger clients without some type of assurance that their business will stay with you until at least the amortization for the new expenditure is completed.

  Otherwise, a long-term strategy based exclusively on fewer, larger clients will almost always lead to disaster.